An important term in the Bitcoin world, which refers to the limited supply, is called block halving.
Where do new Bitcoins come from?
To understand what block halving Bitcoin means, it is necessary to understand how new Bitcoins are created.
There is a limited amount of Bitcoins; 21 million in total. The ceiling on the number of Bitcoins in circulation is predetermined and enforced by the Bitcoin protocol. Coins will be released at a pre-determined rate, with rewards in the form of blocks.
A block reward is a number of Bitcoins that miners receive as a reward for their work. Miners maintain and secure the Bitcoin network, primarily by adding new blocks full of transactions to the blockchain. This is crucial and important work, which is why it is rewarded.
At the moment, the block reward is 6.25 Bitcoins. These are newly created Bitcoins that are added to the current offer. The block reward is halved approximately every four years.
What is block halving?
A Bitcoin block halving is when the miner's block reward is halved. This halving occurs every 210,000 blocks. Since it takes an average of ten minutes to operate a block, it can be estimated that there is one Bitcoin block halved approximately every four years. This will continue until 21 million Bitcoins have circulated.
What happens to the price of Bitcoin after a block halving?
After a block halving, the amount of Bitcoin a miner receives when he finds a block is halved. When the very first block was mined, the reward was 50 Bitcoins, although the market value at that time was almost zero. After the first halving, the reward was reduced to 25 Bitcoins and the current reward per block is 6.25 Bitcoins. The corresponding value in a cash currency such as the dollar or euro is different at any given time, depending on the Bitcoin price.
Some traders believe that a block of Bitcoins that are halved directly affects the price. The first halving took place in 2012. A year later, Bitcoin reached a provisional high. The same thing happened one year after the next halving, in 2017.
Is the halving of the block responsible for this price variation or is it simply speculation? Currently, 1,800 Bitcoins are generated every day and the vast majority of these coins are sold instantly to cover mining expenses. If the halving of the block is reduced, the number of coins that will be introduced to the market will decrease accordingly, resulting in greater scarcity. This is the most logical explanation for the price increases following the halving of the blocks.
But will this also happen with the next halving in 2024? We cannot be certain; the price of Bitcoin is volatile and as the dates for the halving are known, the increasing scarcity could already be taken into account before the halving.
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